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Enterprise Integration Patterns Tutorial Reference Chart Message Translator A Message Translator translates one application’s message format into another. Fundamental analysis studies factors such as supply, demand, weather, political developments, economic reports and the like to come up with their forecast for potential price direction. Even the staunchest advocate of market fundamentals is likely to refer to a price chart before making a trade, if for no other reason than to get some perspective on how current prices fit into a market’s price history.
Over the years traders have developed a number of different types of charts in an effort to get a better view of price action.
Close-only charts – As its name suggests, only the close for a time period is plotted, and a line connects the dots of these closes. Bar or line chart – Perhaps the most popular type of chart, the bar chart adds new information for the trader, showing the high and low prices for a time period in addition to a horizontal notch on the right side of the vertical bar indicating the close.
Candlestick chart – This concept was introduced to western traders in the late 1980s and adds yet another dimension to the standard open-high-low-close price data to make the price action during a period more visual at a glance. No matter what chart type you use, the first thing you should try to determine as a trader is the trend of market.
In some cases, you can draw a line parallel to the uptrend or downtrend line to form a trading channel, providing some boundaries within which the trend unfolds. Channels make the trend clearer, and breakouts in either direction can provide signals to initiate or exit positions.
Bullish flags – Bullish flag patterns occur when a market makes a very strong uptrend in prices, followed by a pause or sideways to lower trading for a few price bars, and then the market resumes a strong price uptrend.
Markets typically fluctuate between periods of high volatility and periods of low volatility, and that is how flag patterns are formed as the market seems to take a breather to reassess the situation before resuming its upward climb. Bearish flags – Bearish flag patterns are formed when a market makes a strong price downtrend followed by a pause or sideways to higher trading for a few price bars, and then a resumption of the strong price downtrend. Symmetrical triangles or pennants – Several types of triangle-shaped patterns are continuation patterns. Descending triangle – Adding to the succession of patterns suggesting a continuation of the downtrend on the chart above is the descending triangle. Cup and saucer – Some analysts call this formation a cup and handle, but the type of trading activity is the same.
Like their name implies, these patterns suggest that one trend is ending and the market is ready to begin another trend in the opposite direction or, perhaps more likely, move sideways for a while. Double bottoms – The principle of this pattern is the same as the double-top reversal, except reversed. Head-and-shoulders top reversal – This classic trend reversal pattern occurs when the market makes a new high (left shoulder), drops back, runs up to a higher high (head), drops back again, rallies to a high that is at about the same level as the left shoulder high (right shoulder) and then declines again. The head-and-shoulders is one of several chart patterns that can be used to project a price target. Falling wedge – This pattern occurs when the market is in an overall price downtrend and the highs are declining faster than the lows, forming a wedge shape.
Rising wedge – This pattern is the reversal of the falling wedge and occurs when the market is in an overall price uptrend s.
Diamond pattern – This is a relatively rare pattern that usually occurs at market tops.


Several other concepts need to be mentioned in any discussion of basic chart patterns because they are an integral part of any technical analysis toolbox.
Support and resistance – As has been mentioned previously in this tutorial, technical analysis begins with the trend line. No matter what you use as an expected retracement target, it gains heightened validity if it coincides with some other important form of support or resistance such as a trend line, previous high or low or a gap. Gaps cannot be characterized as reversal or continuation signals as different gaps mean different things – and sometimes have little impact at all. There are many chart patterns in the forex market: Trend, Support, Resistance, Flag, Pennant, Wedge, Gap, Head and shoulders, Rectangle, Ascending triangle, Descending triangle, Symmetrical triangle, Breakout, Double top, Triple top, Double bottom, Triple bottom, Price channel, Rounding bottom, Rounding top.
Identifying chart patterns is simply a system for predicting stock market trends and turns! The technical trader’s main resource is a price chart, which shows visually what has happened to prices historically and, based on past market action, what is likely to happen when the same conditions arise in the present. Old chart techniques are resurrected and new chart ideas devised, but the following types of charts continue to be the most widely used.
Many chart services also show the opening price with a horizontal notch on the left side of the vertical price bar. In an uptrending move, the straight line across the reaction lows reveals the trend, and a parallel line across the highs defines the channel.
One example of a channel is the formation that develops during a sideways trading range or a basing pattern when prices hold in a generally narrow band at lower price levels for a period of time. As long as price action continues to respect a trend by bouncing off a trend line, the trend line is perhaps the most powerful continuation pattern. As with a bullish flag, the congestion area that forms is a period when the market consolidates and reassesses what it has done before returning to its downward trek.
The market is able to find buying support at about the same general level for several days in a row, but the highs for the day get progressively lower as prices move toward the apex of the triangle.
A market makes a gradual descent, trades at a lower level for a while and then makes a gradual ascent to form a rounding bottom – the saucer or the cup, depending on the name you give this formation. When prices break through the neckline, the reversal pattern is complete and a potential uptrend may begin. Volatility increases at higher price levels, producing wider range days to form the widest part of the diamond. One of the favorite methods for determining support and resistance levels is to look at a bar chart and its past price history and then see at what price levels the highs, lows and closes seem to be touching the most.
For example, a double bottom may form because prices find support from an earlier bottom, or a triangle may form as prices are unable to overcome short-term trend line support or resistance until a breakout eventually does occur.
For example, let’s say a market is in a solid uptrend that began at 100 and rallies to 200. However, for those markets that have only day sessions, which includes most physical commodities as well as stocks, gaps may show up because of some overnight news or development that causes a sudden shift in prices. These occur at the beginning of a move as prices reject the previous tend and suddenly reverse course or at the breakout point of a chart formation such as a trend line or a triangle.
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During a downtrend, a line is drawn to the right along successive rally peaks (see chart below). One rule for negating trend lines is that prices must penetrate the trend line resistance or support level and then show evidence of follow-through strength or weakness during the next trading session. In a downtrending market, the straight line across the highs determines the trend and a channel line is drawn across the lows. Technical odds favor a price breakout from the triangle pattern in the direction of the most recent dominant price trend – in the chart example above, down. As the chart indicates, it may take a few more days of trading as buyers and sellers retest the breakout. After prices reach the lip on the right side of the saucer (or cup), the market runs into resistance from the lip on the left side and sets back for a short time before moving back up to the lip level, forming the cup (or handle). In all of these patterns, prices reach a fresh low, rebound a bit, drop back to re-test the low and then move back higher. As with the head-and-shoulders top, there is likely to be some trading back and forth on either side of the neckline as the market makes its decision on which way to go, and the distance between the neckline and the head can be used to project how high prices might go.
Eventually, the force of selling begins to dry up and can’t take prices lower, and the market starts to rebound as buying power exceeds selling power. Then volatility decreases on the right side of the high and the price bars get smaller as they move into a triangle-like pattern to complete the diamond formation. This method of determining support and resistance levels works on any bar chart timeframe – hourly, daily, weekly or monthly. Price gaps typicallly indicate a strong market move, and many times the gaps will then serve as important support or resistance levels on the chart.
Once this exuberant buying or selling has occurred, there are no new buyers or sellers to maintain the trend – the force that was driving the trend has been exhausted.
Forex chart is a very significant thing one should learn, if you want to trade successfully in the forex market. Keep in mind that all chart patterns apply to all trading time frames – daily, weekly, monthly, yearly, hourly or even minute-by-minute bar charts. As the charts in the trend line discussion illustrated, a trend line along the lows in an uptrend or across the highs in a downtrend is a key barrier for prices to cross if the market is to change trend direction.
For example, if a market closes at 100 in one session and then opens at 105 in the next section, a 5-point gap would be evident on a chart. It obviously is impossible to know that for sure until a move is complete so these gaps are a little tricky to use in analysis. This is the type of situation that sometimes produces island tops or island bottoms on a price chart.



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13.11.2013 | Author: admin



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